(SOFIA) - Corruption in Bulgaria has become the country's biggest problem, leading to billion-euro losses each year and posing a threat to expected funding from the European Union to the Balkan newcomer, an independent democracy watchdog said.

Last year, more than one billion euros were handed over as bribes, according to an anti-corruption report by the Centre for the Study of Democracy (CSD) released Monday.

Corruption in the awarding of public contracts and concessions to companies close to the political elite generated losses of about 500 million euros (680 million dollars), while fraud in exchanges of state-owned land accounted for losses of 400 million euros, it said.

Those losses are nearly equal to the amount of annual funding the EU is expected to provide Bulgaria over the next seven years, the watchdog said, adding that the methods used in misappropriating public money are extremely varied and sophisticated.

"In such an environment it will be easy for corrupt political interests to siphon resources from the almost 11 billion euros of EU funds made available to Bulgaria in the first seven years after accession," the report said.

Bulgaria joined the European Union in January but was placed under an unprecedented monitoring mechanism due to lack of progress in fighting crime and corruption and the inability to put well-known criminals and corrupt politicians behind bars.

"Bulgarians for the first time in a decade identify corruption as currently the gravest problem in society," the CSD report said.

EU funds could end up being used for setting up and maintaining elite cartels, restricting the competitive access to resources for all other companies, it added.

"Perfectly legal practices are used to the harm of the public interest," Court of Auditors director Valeri Dimitrov told a conference in Sofia on Monday.

"After the completion of the privatisation process and with the beginning of the real estate market boom in the big cities and the resorts in the recent years, state-owned and municipal lands and property have become the public resources in the highest demand and most exposed to corruption pressure," the report said.

Land swaps followed a pattern, the report said, where companies close to the political elite bribed municipal officials to get permission to swap less attractive land for top-spot property.

It also pointed out that "major political corruption involving members of the government, lawmakers, senior state officials remains a serious challenge."

The winners of public tenders are more often than not known in advance, and this discourages other companies from submitting bids, it added.

And the watchdog group warned that corruption risks would likely rise as EU funding did.

"Given the current environment of virtual impunity for political corruption, there is a real threat that the opportunities of EU membership will be hijacked by private interests," the CSD said.

It cautioned against the "emergence of corrupt networks of government officials, the administration, and companies to channel EU money towards certain businesses and the creation of cartels in lucrative economic sectors."

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